Ponzi vs. Pyramid Scheme
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Pyramid Scheme
A type of financial fraud in which people pay to join an organization in exchange for the right to sell memberships to other people
How do Ponzi schemes differ from Pyramid schemes.
In both Ponzi schemes and pyramid schemes, existing investors are compensated by the contributions of new investors. Ponzi scheme participants believe they are earning returns from their investment, while pyramid scheme participants are aware that they are earning money by recruiting new participants.
Ponzi Scheme
a form of fraud in which belief in the success of a nonexistent enterprise is fostered by the payment of quick returns to the first investors from money invested by later investors.